Tuesday 7 April 2015

Tesco & Walmart: going in different directions to reach the same point?

News that Walmart are telling suppliers to 'keep those trade funds and put them toward the cost of goods' will result in significant - and permanent - price cuts, has to indicate that Asda may at least consider a similar approach in the UK....

Given that trade investment can be 20% of supplier selling prices - translating to 15% of net shelf-prices for a retailer on average margins of 25%, the impact on retail prices would be significant..

Meanwhile, Tesco's move from 27  to 3 negotiation points re trade investment would achieve a similar result on shelf.

Whilst each retailer is taking responsibility for setting the selling price in a drive for market share, the difference between the two approaches are:
  • Walmart/Asda are implying that trade investment transferred into lower buying-in prices and then to EDLP has more impact on consumers    
  • Tesco sees merit but overlap in some trade investment buckets and will presumably negotiate the transfer of 'surplus' monies to the front margin, where they will presumably fund price reductions?

The issue for UK suppliers has to  be the extent to which the other retailers will follow the trade-investment funded pricing route...

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